‘Coal is the fuel of the past and it’s no longer a wise investment for our pensioners,’ said the California assemblyman who presented the bill.
Photograph: Chris Ratcliffe/Bloomberg/Getty Images

California lawmakers passed a bill on Wednesday requiring the state’s two largest pension plans to divest their holdings in thermal coal as part of a push this legislative session to address climate change.

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“Coal is the fuel of the past and it’s no longer a wise investment for our pensioners,” said assemblyman Rob Bonta, who presented the bill before the assembly, in a statement. “I’m pleased that my colleagues agree: it’s time to move on from this dirty energy source.”

SB 185, also called “Investing with Values and Responsibility”, passed the state assembly by a vote of 43-27, mostly along party lines with some Democrats abstaining. It will now head to the governor’s desk to be signed into law – Governor Jerry Brown has expressed strong support for the climate change package and will probably formalize the bill in coming days.

The measure calls for the California Public Employees’ Retirement System (CalPERS) and the California State Teachers’ Retirement System (CalSTRS) to begin a divestment process in any holdings of thermal coal, and to complete that divestment within 18 months of the law being applied to a particular pension system.

CalPERS and CalSTRS are the largest public pension funds in the US. CalPERS has about $292bn in assets and CalSTRS has $191bn in assets. CalPERS currently holds stock in about 30 coal companies, mostly in index funds, with a value of about $167m, according to legislative information on the bill.

CalSTRS has “approximately a $40m holding” in coal, according to a statement provided by Ricardo Duran, media relations spokesman for the plan.

CalSTRS has already begun examining the divestment issue, and expects that it will take four to eight months to complete that analysis.

“Any effort to remove thermal coal from the portfolio must first meet the board’s standard of fiduciary care,” the statement read. “CalSTRS’ first priority is, and always has been, safeguarding the financial futures of our members and their families, and to make decisions solely in the interest of our members and their beneficiaries.”

Thermal coal is used to produce electrical power throughout the United States, but in California, natural gas is more commonly used. However, “coal plants are the nation’s top source of carbon dioxide (CO2) emissions, the primary cause of global warming”, according to legislative information on the bill.

“Coal is losing value quickly and investing in coal is a losing proposition for our retirees; it’s a nuisance to public health; and it’s inconsistent with our values as a state on the forefront of efforts to address global climate change,” the senate president pro tempore, Kevin de León, said in a statement. “California’s utilities are phasing out coal, and it’s time our pension funds did the same.”